{"id":4235,"date":"2020-07-14T12:31:35","date_gmt":"2020-07-14T10:31:35","guid":{"rendered":"https:\/\/bcademy.network\/?p=4235"},"modified":"2020-07-14T12:31:36","modified_gmt":"2020-07-14T10:31:36","slug":"federal-reserves-balance-sheet-in-contraction-still-not-a-bad-news-for-bitcoin","status":"publish","type":"post","link":"https:\/\/bcademy.it\/en\/federal-reserves-balance-sheet-in-contraction-still-not-a-bad-news-for-bitcoin\/","title":{"rendered":"Federal Reserve\u2019s balance sheet in contraction? Still, not a bad news for Bitcoin"},"content":{"rendered":"\n

The central bank\u2019s balance sheet declined by $88 billion to $6.97 trillion (-1.5%) in the week ending July 8, having hit a record high of $7.16 trillion in early June, according to the data source Federal Reserve Bank of St. Louis. The decline is the largest in 11 years.<\/p>\n\n\n\n

The drop is a sign of the Fed starting to unwind the liquidity-boosting measures rolled out over the past four months to counter the economic effects of the coronavirus crisis. Some have anticipated a pullback in bitcoin prices as a result.<\/p>\n\n\n\n

That\u2019s because the leading cryptocurrency by market value has recently developed a relatively positive correlation with the S&P 500. And Wall Street\u2019s equity index has rallied by over 40% since a slump in March, largely on the back of Fed\u2019s balance sheet expansion.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

As such, a contracting balance sheet could portend a pullback in stocks, and perhaps bitcoin.<\/p>\n\n\n\n

However, zooming into the details of the Fed\u2019s balance sheet reveals the reduction has been primarily driven by a drop in demand for emergency liquidity measures, a sign the coronavirus-induced stress in the financial system has eased.<\/p>\n\n\n\n

\u201cLess emergency funding being used is a healthy sign,\u201d said Richard Rosenblum, co-founder of GSR. \u201cMarkets might not be able to stand completely on their own two feet, but they are at least a bit further from code red emergency mode.\u201d<\/p>\n\n\n\n

Notably, dollar swap lines \u2014 reciprocal agreements between central banks to keep currency available for their commercial banks \u2014 have fallen by over $40 billion, as noted by Lyn Alden, founder of Lyn Alden Investment Strategy.<\/p>\n\n\n\n

The Fed opened dollar swap lines with other central banks after the coronavirus crash caused a dollar shortage in the international markets. Therefore, the latest decline in the dollar swap lines could be considered good news.<\/p>\n\n\n\n

Meanwhile, the balance of outstanding repurchase agreements, or repos, slipped to zero from $61.2 billion seen in the week ended July 1. Repos are a source of short-term funding for commercial banks. The Fed began injecting liquidity in the repo market in mid-September 2019 and ramped up the effort following the market crisis in March.<\/p>\n\n\n\n

As such, the decline in repos to zero indicates that the coronavirus-induced stress in the funding markets has eased significantly.<\/p>\n\n\n\n

However, the Fed is still injecting liquidity into the U.S. economy via purchases of U.S. treasuries at a faster pace. The central bank accumulated treasuries worth $18 billion during the past week, pushing the overall bond holdings to a new high of $4.23 trillion.<\/p>\n\n\n\n

All in all, the Fed\u2019s balance sheet contraction and drop in repos and swap lines appear indicative of a Goldilocks scenario for equities, given the ongoing crisis at least, and seems unlikely to pose a threat to bitcoin\u2019s price.<\/p>\n\n\n\n

The cryptocurrency would still face stronger selling pressure if stocks once more collapse on adverse coronavirus news. But the market is still showing resilience with a measured drop, even though U.S. registered 65,551 new coronavirus cases on Thursday, a new daily record, according to John Hopkins University.<\/p>\n\n\n\n

At press time, futures tied to the S&P 500 are reporting a 0.33% decline, while bitcoin is changing hands near $9,170, having faced rejection above $9,400 on Thursday.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Bitcoin fell below $9,150 early Friday, reversing most of the gain from $9,060 to $9,480 seen in the first half of the week.<\/p>\n\n\n\n

The pullback has invalidated the bullish view put forward by Wednesday\u2019s upside break of a falling channel represented by trendlines connecting June 1 and 22 highs and June 2 and 15 lows.<\/p>\n\n\n\n

Essentially, it\u2019s a case of failed breakout, which chart analysts consider a powerful bearish signal. In addition, the 3% decline seen in the past 24 hours has established another bearish lower high on the daily chart, as noted by popular analyst Josh Rager.<\/p>\n\n\n\n

Even so, it is still too early to say the bears have regained control because the cryptocurrency is holding above $9,000. Sellers have failed multiple times in the last four weeks to establish a strong foothold below that psychological support.<\/p>\n\n\n\n

As such, the immediate outlook would remain neutral as long as prices are trapped in the range of $9,000 and $9,480 (Wednesday\u2019s high). Acceptance under $9,000 may prove costly \u2014 so much so that the cryptocurrency may end up falling to $7,100.<\/p>\n\n\n\n

Meanwhile, a move above $9,480 would put the focus on the psychological hurdle of $10,000 once more. Option traders are betting on a bullish breakout.<\/p>\n","protected":false},"excerpt":{"rendered":"

The central bank\u2019s balance sheet declined by $88 billion to $6.97 trillion (-1.5%) in the week ending July 8, having<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"yoast_head":"\nFederal Reserve\u2019s balance sheet in contraction? Still, not a bad news for Bitcoin - Bcademy<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/bcademy.it\/il-bilancio-della-federal-reserve-e-in-contrazione-nessun-problema-per-bitcoin\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Federal Reserve\u2019s balance sheet in contraction? 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